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Shaji Vikraman

IN 1994-95, shortly after a major controversy broke out over the Unit Trust of India's (UTI) private placement of equity with Reliance Industries Ltd (RIL), some work was undertaken internally to look at the re-structuring of India's largest investment institution.

The Finance Secretary at that time, Mr Montek Singh Ahluwalia, wrote to the UTI Chairman, Mr S.A. Dave, to look at the possibility of re-structuring the Trust. A prominent management consultant was then put on the job. The suggestion made was to have a holding company in which the equity investment of subsidiary companies promoted by the UTI would be parked.

During that time, a suggestion was also made that some of the sponsors of the UTI who had floated their own mutual funds should move out of the UTI board due to perceived conflict of interests.

For six full years, no one paid any heed to that suggestion. IDBI, LIC and SBI which had sponsored their own mutual funds sat on the board of UTI undaunted for a long time, even after another scam broke out in March 2001.

After making some threatening noises, the Finance Ministry never moved to fix responsibility on the Board of Trustees.

Not only that, a couple of months ago when a new team of sponsors were being finalised concerns of conflict of interests were scoffed at by Ministry officials.

Last week, however, the Joint Parliamentary Committee (JPC) probing the March 2001 stock scam made it very clear that the sponsors of UTI-II should not have their own mutual fund. All the four — LIC, SBI, BOB and PNB — who have registered a new asset management company to manage UTI-II, the NAV base schemes of UTI have their own mutual funds. So it may well be back to square one for the government.

The JPC has put another spoke in the government's wheel for UTI-I also. The Committee wants an independent fund manager to run the assured return schemes in UTI-I. This when the government is close to appointing its own administrators for UTI-I, with the ultimate aim of winding up UTI-I.

In early 2001, when the blue print for restructuring the UTI was drawn up in the Finance Ministry the issue of conflict of interest was again discussed. The view taken then was that by just being shareholders, there was no conflict of interest for the financial institution and banks as it was different from investment and lending decisions.

That was how it was decided to rope in the same old state-owned company to restructure UTI. Now it is quite inevitable that the restructuring plans worked out painstakingly will all have to be reworked. The government's hand-holding period in the UTI till it is sold off to a strategic investor will no doubt be prolonged now.

Over a month ago, it was decided by the Finance Ministry bosses that any decision on foreclosing of the monthly income plans or the reworking of their interest rates of such schemes would be taken by the new administrators of UTI-I. The government did not want to take a decision ahead of, or independent of, the proposed administrators.

Now with the entire process set to be re-engineered again, the cost of managing the transition could be higher for the government. And delays in doing so could only add to the bill, which the government will have to foot.

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